RECTIFICATION BY ITAT U/S.254(2) – no limitation when assessee or AO apply for rectification- appoint of view found in undisputed judgment of ITAT, Special Bench

[CA DEV KUMAR KOTHARI]

Provision- section 254 of Income –tax Act 1961 regarding order and rectification of order by Tribunal.

Judgment considered:

Bhilai Engg. Corpn. Ltd. Versus Deputy Commissioner Of Income Tax. 2001 (11) TMI 264 - ITAT NAGPUR which seems to have attained finality.

Raja Malwinder Singh Versus Union Of India And Another.Dated: - 04 July 2005 2005 (7) TMI 78 - PUNJAB AND HARYANA High Court

          -In this case judgment in case of Bhilai Enginnering  was not referred to.

Also judgments referred to in above judgments on related aspects of rectification and limitations.

Scope of the article:

In this article limited aspect about applicability of limitation for rectification in case of application by assessee or the AO is discussed. In this regard we find that there is no change in situation due to recent amendment made in S.254(2).

Vide THE FINANCE ACT, 2016  sub-section (2) of S. 254 was amended w.e.f. 1st day of June, 2016. By this amendment limitation for suo moto rectification by ITAT, as stated in first part of sub-section has been reduced to six month from the end of month in which order was passed whereas earlier limitation was "four years from the date of the order".

In this article an attempt is made to find out whether the limitation is only in respect of rectification by ITAT at its own and  limitation is not applicable in case an application is made by any party to the appeal that is Revenue (AO) and Assessee and in such a situation Tribunal is required to rectify the order to make it as per law.

Relevant portion for present study of S. 254 as amended, reads as follows (with highlights added for easy analysis):

Orders of Appellate Tribunal.

254. (1) The Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit.

 (2) The Appellate Tribunal may, at any time within ¹²[six months from the end of the month in which the order was passed] with a view to rectifying any mistake apparent from the record, amend any order passed by it under sub-section (1), and shall make such amendment if the mistake is brought to its notice by the assessee or the ²[Assessing] Officer:

Provided that an amendment which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, shall not be made under this sub-section unless the Appellate Tribunal has given notice to the assessee of its intention to do so and has allowed the assessee a reasonable opportunity of being heard :

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Notes :-

12. Substituted vide THE FINANCE ACT, 2016  w.e.f.  1st day of June, 2016, before it was read as, "four years from the date of the order"

On reading of Section we find that although the word ‘may’ has been used, in sub-section (1). However, it is mandatory for Tribunal to pass an order on appeal because when an appeal has been filed it must be disposed of by Tribunal, to render justice, otherwise the Tribunal will be failing in discharge of its duties to the public (taxpayer being a party to appeal) as well as the Revenue (AO).

In sub-section (2), in first part about rectification at its own by Tribunal also word ‘may’ has been used, this can be considered as discretionary power of Tribunal to pass an order to rectify any mistake apparent from records in the order passed under sub-section (1).

Therefore, it can be said that though the word ‘may’ has been used but it need to be read as shall. When there is mandatory language by use of word ‘shall’ in relation to petition made by assessee or the AO to rectify an order, there is no reason that in case of appeal there is no such mandate and Tribunal can apply its discretion or sweet will to pass or not to pass an order on appeal under S. 254(1) or a rectification order to rectify mistake at its own.

In view of author, and on consideration of all allied provisions, Tribunal must pass an order on appeal on merit after considering documents before it, even if parties to appeal are absent. The practice to dismiss appeal due to absence of appellant and / or respondent is wrong and contrary to law. Even ITAT Rules prescribe that an appeal has to be decided on merit.

In second part word ‘shall’ has been used in relation to rectification on application by any party to appeal that is assessee or revenue. Therefore, when a rectification petition has been filed by assessee or the AO, the Tribunal has to pass an order on such petition also.

Limitation:

It appears that the limitation prescribed is only in relation to rectification of orders at its own by the Tribunal. This is clear from the language used in the provision as highlighted above. The purpose of use of word ‘may’ can be that legislature did not wanted to over burden the Tribunal by making rectification of orders mandatory. Particularly when no limitation has been prescribed in case of rectification on application by party to appeal.

In relation to rectification, on petition by assessee or the AO, there seems no limitation. There is no limitation for filing of a rectification petition as well. Otherwise, there should be clearly provided limitation for filing of a rectification petition also as we find for filing of appeal before CIT(A), ITAT, high Court and the Supreme Court.

The purpose for not prescribing limitation is to make rendering of justice and redressing injustice caused due to a mistake.

Now it is well settled that any authority and Tribunal is bound to follow judgment of the Supreme Court as well as jurisdictional High Court.

The AO can make even a prima facie adjustment in accordance with judgment of jurisdictional High Court and the Supreme Court. The scope of prima facie adjustment is much less than scope of rectifying mistake apparent from records.

Another point is that there is long time in settling of disputes between revenue and tax payers on declaration of law by High Court , and if that is disputed by the Supreme court. Therefore, rectification based on law declared by Courts is an important way to reduce litigation.

It is therefore, fully purposefully that a limitation for filing of a petition for rectification and passing of order has not been specifically mentioned in the section. The subsection (2) is analysed below with highlights:

             (2) The Appellate Tribunal may,

         at any time within ¹²[six months from the end of the month in which the order was passed] with a view to rectifying any mistake apparent from the record, amend any order passed by it under sub-section (1),

       and shall make such amendment if the mistake is brought to its notice by the assessee or the ²[Assessing] Officer:

Therefore, when a petition for rectification has been filed by assessee or the AO, it need to be disposed of on merit as to whether there is a mistake apparent from records, and to make order as per law,  by the.

Judgment of Special Bench of ITAT  dt.29 November 2001:

From judgment in case of Bhilai Engg. Corpn. Ltd. Versus Deputy Commissioner Of Income Tax. 2001 (11) TMI 264 - ITAT NAGPUR (supra.) Special Bench of ITAT (Three members Bench) paragraph 3 and 13 are reproduced below:

         3. Both the parties were heard on this point. Section 254(2) of the Income-tax Act, 1961 (hereinafter called the "Act") prescribes as under:--

        "The Appellate Tribunal may, at any time within four years from the date of the order, with a view to rectifying any mistake apparent from the record, amend any order passed by it under sub-section (1), and shall make such amendment if the mistake is brought to its notice by the assessee or the Assessing Officer."

         After Tribunal may, there is coma. Thereafter the words are at any time within four years. This setting of the section suggests that the words "at its own" are implied, therefore, the time limit of four years is in the context of suo motu rectification. Where rectification is to be done in accordance with the prayer made by either of the parties such time limit is not much relevant. The requirement of justice is the paramount factor. It is to be seen that how best justice could be done. If the error is palpable Tribunal, in the interest of justice can proceed with the matter and set the things right.”

      13. Hon'ble Supreme Court in the case of Poothundu Plantations (P.) Ltd. v. Agrl ITO 1996 (7) TMI 3 - SUPREME COURT has held that if the Supreme Court has construed the meaning of a section, then any decision to the contrary given by any other authority must be held to be erroneous and such error must be treated as an error apparent on the record. In the case of B.V.K. Seshavataram v. CIT1994 (4) TMI 64 - ANDHRA PRADESH High Court, Hon'ble High Court has held that subsequent decision of the Supreme Court can form basis of order of rectification. In the case of CED v. V.G. Badamia 1990 (6) TMI 42 - BOMBAY High Court the Tribunal was held to be justified in rectifying the order so as to bring it in conformity with the Supreme Court decision.

Un quote:

On search of judgments it appears that the judgment in case of Bhilai Engineering has not been challenged by Revenue and it seems to have attained finality. This judgment of ITAT is based on objective of rendering justice. If there is no limitation, it is not for all parties to appeal, which in case of Income Tax Appeals before ITAT would generally be the assessee and the Assessing Officer. Therefore both parties are given equal treatment. Therefore, there should not be objection by assessee, if the AO makes a petition for rectification and there should not be objection by AO/ Revenue is assessee makes an application for rectification of order by ITAT.

Judgment of Punjab and Hariyana High Court:

In  case of Raja Malwinder Singh in judgment dt. 04 July 2005 PUNJAB AND HARYANA High Court [2005 (7) TMI 78 - PUNJAB AND HARYANA High Court] has held that limit of four years apply even in case of rectification on application by party to appeal (assessee and AO)

However in this case judgment of ITAT, Special Bench in case of Bhilai Engineering was not referred and it was not contended that this judgment having attained finality should be followed. In fact the revenue having accepted judgment in Bhilai Engineering, should not have objected to rectification petition made by assessee.

It appears that assessee Raja Malwinder Singh has not filed appeal against judgment of the Punjab and Haryana High Court before the Supreme Court, as appears on search of disposed of and pending cases on website of the Supreme Court and also search on some other related websites.